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Blockbuster tests higher DVD rental fee

Blockbuster Inc. on Wednesday said it has started to test a higher fee of $18 for unlimited monthly DVD rentals.
/ Source: Reuters

Blockbuster Inc. Wednesday said it has begun advertising a test fee of $18 for unlimited monthly DVD rentals, potentially reversing an earlier attempt to undercut rival Netflix Inc. on price.

The test started Monday and does not necessarily mean the top U.S. movie rental chain plans to adopt the new price, Blockbuster spokeswoman Jeri Anne Thomas said.

"We are a retail company, we test a lot of things," Thomas said. "We are testing $17.99, that is one of several tests."

Blockbuster, which recently gave up lucrative late return fees to woo customers, has been locked in a costly price war with top online DVD renter Netflix since late last year.

Dallas-based Blockbuster is trying to garner more subscribers for its online rental service, launched in August.

In December, it cut its subscription price to as low as $14.99, its current fee, which allows customers to take out three DVDs at a time.

Previously Blockbuster had charged as much as $19.99 when it launched its online rentals but quickly brought that fee down to $17.49 on Oct. 15, egged on by Netflix, whose comparable fee is currently $17.99 compared with $21.99, which it charged previously.

According to Thomas, Blockbuster customers who respond are informed that the Internet ads are part of a test, and are charged only $14.99.

But analysts said the test may be part of a U-turn in the company's pricing strategy to ensure a return on the cash that Blockbuster is pumping into its subscription service.

"The question is how much tolerance will the board and management have for continuing losses in the online division," said Anthony Di Clemente, an analyst at Lehman Brothers.

The testing of the $18 fee comes less than a week after activist investor Carl Icahn won a seat on the Blockbuster board after a heated proxy fight in which he criticized Blockbuster's spending on online rentals and on its "No Late Fees" campaign as a "spending spree."

Blockbuster, of which Icahn is its largest shareholder, is pumping millions of dollars into online DVD rentals as technology like video-on-demand and sales of cut-price movies at retailers like Wal-Mart Stores Inc. cut into rental demand.

The new price, if adopted, would bring Blockbuster's fees in line with those of Netflix but would not close the gap with Wal-Mart, whose low-cost rental plan costs $12.97 but allows customers to take out only two DVD at a time.

At Netflix customers currently pay $14.99 a month for a two-at-a-time unlimited DVD rental subscription.

Netflix, which pioneered online DVD rental, dominates the market with more than 3 million subscribers, compared to Blockbuster's 750,000. On May 5, Blockbuster said it aimed to finish the current quarter with at least a million online renters.

Year-to-date Netflix shares are up 25 percent compared with a rise of less than 3 percent in Blockbuster's stock.